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    Various Accounting Multiple Choice

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    1. Which one of the following is not a primary problem associated with accounts receivable?
    a. Depreciating accounts receivable
    b. Recognizing accounts receivable
    c. Valuing accounts receivable
    d. Disposing of accounts receivable

    A customer charges a treadmill at Hank's Sport Shop. The price is $1,000 and the financing charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account.

    2. What is the amount of the finance charge?
    a. $30.00
    b. $7.50
    c. $90.00
    d. $3.00

    3. The accounts affected by the journal entry made by Hank's Sport Shop to record the finance charge are
    a. Accounts Receivable
    b. Cash
    Finance Receivable
    c. Accounts Receivable
    Interest Payable
    d. Accounts Receivable
    Interest Revenue

    4. Under the allowance method, writing off an uncollectible account
    a. affects only balance sheet accounts.
    b. affects both balance sheet and income statement accounts.
    c. affects only income statement accounts.
    d. is not acceptable practice.

    5. A debit balance in the Allowance for Doubtful Accounts
    a. is the normal balance for that account.
    b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
    c. indicates that actual bad debt write-offs have been less than what was estimated.
    d. cannot occur if the percentage of sales method of estimating bad debts is used

    6. King Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management estimates that 2% is the sales percentage to use. What adjusting entry will King Company make to record the bad debts expense?
    a. Bad Debts Expense 50,000
    Allowance for Doubtful Accounts 50,000
    b. Bad Debts Expense 40,000
    Allowance for Doubtful Accounts 40,000
    c. Bad Debts Expense 40,000
    Accounts Receivable 40,000
    d. Bad Debts Expense 50,000
    Accounts Receivable 50,000

    7. Which of the following assets does not decline in service potential over the course of its useful life?
    a. Equipment
    b. Furnishings
    c. Land
    d. Fixtures

    8. The balance in the Accumulated Depreciation account represents the
    a. cash fund to be used to replace plant assets.
    b. amount to be deducted from the cost of the plant asset to arrive at its fair market value.
    c. amount charged to expense in the current period.
    d. amount charged to expense since the acquisition of the plant asset.

    9. Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?
    a. Salvage value
    b. Estimated useful life
    c. Cash needed to replace the plant asset
    d. Cost

    10. A company purchased factory equipment for $150,000. It is estimated that the equipment will have a $15,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be
    a. $60,000.
    b. $36,000.
    c. $54,000.
    d. $32,400

    11. A factory machine was purchased for $60,000 on January 1, 2006. It was estimated that it would have a $12,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2006. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2006 would be
    a. $6,000.
    b. $9,600.
    c. $12,000.
    d. $4,800.

    12. Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally
    a. expensed when incurred.
    b. capitalized as a part of the cost of the asset.
    c. debited to the Accumulated Depreciation account.
    d. not recorded until they become material in amount

    13. A retail store credited the Sales account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales account amounted to $168,000, what is the amount of the sales taxes owed to the taxing agency?
    a. $160,000.
    b. $168,000.
    c. $8,400.
    d. $8,000.

    14. On December 31, 2005, Bertram Company had an outstanding note payable totaling $125,000. The note is due in equal annual installments of $25,000 on January 1 of each of the next 5 years. The current portion of long-term debt that should be reported on the December 31, 2005 balance sheet is
    a. $0
    b. $25,000
    c. $50,000
    d. $125,000

    15. A cash register tape shows cash sales of $3,000 and sales taxes of $150. The journal entry to record this information is
    a. Cash 3,000
    Sales 3,000
    b. Cash 3,150
    Sales Tax Revenue 150
    Sales 3,000
    c. Cash 3,000
    Sales Tax Expense 150
    Sales 3,150
    d. Cash 3,150
    Sales 3,000
    Sales Taxes Payable 150

    16. Baldwin Company issued a five-year interest-bearing note payable for $50,000 on January 1, 2003. Each January the company is required to pay $10,000 on the note. How will this note be reported on the December 31, 2004 balance sheet?
    a. Long-term debt, $50,000.
    b. Long-term debt, $40,000.
    c. Long-term debt, $30,000; Long-term debt due within one year, $10,000.
    d. Long-term debt of $40,000; Long-term debt due within one year, $10,000.

    17. The market rate of interest is often called the
    a. stated rate.
    b. effective rate.
    c. coupon rate.
    d. contractual rate.

    18. Over the term of the bonds, the balance in the Discount on Bonds Payable account will
    a. fluctuate up and down if the market is volatile.
    b. decrease.
    c. increase.
    d. be unaffected until the bonds mature.

    19. Which of the following is not true of a corporation?
    a. It may buy, own, and sell property.
    b. It may sue and be sued.
    c. The acts of its owners bind the corporation.
    d. It may enter into binding legal contracts in its own name

    20. Which of the following statements is not considered a disadvantage of the corporate form of organization?
    a. Additional taxes
    b. Government regulations
    c. Limited liability of stockholders
    d. Separation of ownership and management

    21. Dividends are declared out of
    a. Capital Stock.
    b. Paid-in Capital in Excess of Par Value.
    c. Retained Earnings.
    d. Treasury Stock.

    22. Treasury stock is
    a. stock issued by the U.S. Treasury Department.
    b. stock purchased by a corporation and held as an investment in its treasury.
    c. corporate stock issued by the treasurer of a company.
    d. a corporation's own stock which has been reacquired but not canceled

    23. The trial balance of Frampton Inc. include the following balances: Common Stock, $13,000; Paid in Capital in Excess of Par, $32,000; Treasury Stock, $3,000; Preferred Stock, $10,000. Capital stock totals
    a. $23,000
    b. $42,000
    c. $55,000
    d. $58,000

    24. All of the following would be reported as deductions in the Retained Earnings Statement except for
    a. net income
    b. cash dividends
    c. stock dividends
    d. adjustments to correct overstatements of prior years' net income

    25. The primary purpose of the statement of cash flows is to
    a. provide information about the investing and financing activities during a period.
    b. prove that revenues exceed expenses if there is a net income.
    c. provide information about the cash receipts and cash payments during a period.
    d. facilitate banking relationships.

    26. Cash equivalents do not include
    a. short-term corporate notes.
    b. treasury bills.
    c. money market funds.
    d. 2-year certificates of deposit.

    27. Generally, the most important category on the statement of cash flows is cash flows from
    a. operating activities.
    b. investing activities.
    c. financing activities.
    d. significant noncash activities.

    28. During 2005, Kerry Company reported net income of $145,000, including a gain on the sale of equipment of $5,000. The equipment had a cost of $23,000, a book value of $12,000 and was sold for proceeds of $17,000. The company also purchased land for $25,000 during 2005. No other long-term asset account balances changed during the year. Cash flows from investing activities for 2005 total
    a. net cash inflow of $3,000.
    b. net cash outflow of $20,000.
    c. net cash inflow of $125,000.
    d. net cash outflow of $8,000.

    29. Olson Company has other operating expenses of $80,000. There has been a decrease in prepaid expenses of $4,000 during the year, and accrued liabilities are $6,000 larger than in the prior period. What were Olson's cash payments for operating expenses?
    a. $82,000.
    b. $78,000.
    c. $70,000.
    d. $80,000

    30. Foley Inc. had cash sales of $300,000 and credit sales of $1,050,000. The accounts receivable balance increased $15,000 during the year. How much cash did Foley receive from its customers during the year?
    a. $1,335,000.
    b. $1,365,000.
    c. $1,035,000.
    d. $1,065,000

    31. Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?
    a. Current ratio
    b. Acid-test ratio
    c. Asset turnover
    d. Receivables turnover

    32. Which of the following is not a profitability ratio?
    a. Payout ratio
    b. Profit margin
    c. Times interest earned
    d. Return on common stockholders' equity

    33. Traditional financial statements are based on the
    a. unadjusted cost.
    b. price-level adjusted cost.
    c. lower of cost or price-level adjusted historical cost.
    d. fair market value.

    Use the following information to answer questions 34 and 35.
    Augusten Enterprises reported the following current asset account balances: Cash, $12,000; Accounts Receivable, $24,000; Prepaid Expenses, $2,000; and Inventory, $42,000. The company reported current liabilities of $20,000.

    34. What is the company's current ratio?
    a. .5:1
    b. 1.8:1
    c. 4:1
    d. 2.1:1

    35. What is the company's acid-test ratio?
    a. .5:1
    b. 1.8:1
    c. 4:1
    d. 2.1:1

    36. If you are able to earn a 15% rate of return, what amount would you need to invest to have $500 one year from now?
    a. $495.05
    b. $437.50
    c. $425.00
    d. $434.79

    37. The present value of $10,000 to be received in 5 years will be smaller if the discount rate is
    a. increased.
    b. decreased.
    c. not changed.
    d. equal to the stated rate of interest

    38. If a bond has a stated rate of interest of 6%, but the market rate of interest is 8%, the bond
    a. will sell at a discount.
    b. will sell at a premium.
    c. may sell at either a premium or a discount.
    d. will sell at its face value

    39. Which one of the following payroll taxes is not withheld from the employee's wages because it is not levied on the employee?
    a. Federal income tax
    b. Federal unemployment tax
    c. State income tax
    d. FICA tax

    40. The tax that is paid equally by the employer and employee is the
    a. federal income tax.
    b. federal unemployment tax.
    c. state unemployment tax.
    d. FICA tax

    41. Lisa Ball's regular rate of pay is $15 per hour with one and one-half times her regular rate for any hours which exceed 40 hours per week. She worked 48 hours last week. Therefore, her gross wages were
    a. $720.
    b. $600.
    c. $780.
    d. $1,080

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    Solution Preview

    1) a. Accounts Receivables are not depreciated
    2) b. $7.50 9% annum is 9/12 or .75% interest per month. .75% interst on $1,000 is $7.50
    3) d. A/R will increase anf the company will record the interest as revenue earned
    4) a. Only the balance sheet accounts The allowance for doubtful accounts keeps the write off from affecting the income statement
    5) b. The actual write off waws higher than anticipated
    6) b.
    7) c. Land does not decline in service potential
    8) d. Depreciation expense adds to accumulated depreciation over the life of the asset since acquired
    9) c. The cost to replace is not a concern relative to depreciation
    10) d. The purchase price minus salvage value=depreciable amount=$135,000. Straight line method for 5 years depreciates 20% per year, so double declining method depreciates 40%. 40% depreciation in ...

    Solution Summary

    Depreciation, Bad Debts, Bonds